What are Treasury Shares?
A new Statutory Instrument - Companies (Acquisition of Own Shares) (Treasury Shares) Regulation 2003.
The regulation amended the Companies Act 1985 to allow companies to buy back shares and keep them in a Treasury Share account, instead of cancelling them as previously required. This has since been further enhanced by the Companies Act 2006.
The shares must;
• be bought from distributable profits,
• be qualifying shares,
• form part of the issued capital,
• be held in the name of the Company, not that of a nominee. Companies cannot,
• exercise any voting rights attached to the shares,
• receive any dividend payments,
• sell or transfer the shares at price-sensitive times or when in a close period.
The same pre-emption rights rules that apply to the allotment of new shares apply to the sale of Treasury Shares.
Why have Treasury Shares?
• Flexibility - Companies can now more effectively manage their capital structures, which may in turn lead to a reduction in cost of capital.
• Financial savings - At present, shares bought back must be cancelled, which can be expensive if the shares need to be re-issued at a later date. Treasury Shares remove this requirement.
• An alternative to a discounted Rights Issue -Treasury Shares can be resold in small lots through the market at full price.
• Investment choices - If companies consider that the return would be higher they can invest in their own shares, rather than in other business projects.
• Avoids new allotments - Treasury Shares can be used to satisfy the exercise of Employee Share Options and Employee Share Schemes. They can also be used to fulfil Monthly Purchase Plan and DRIP share requirements. This reduces the requirement to issue and allot new shares, which can be time-consuming and expensive.
How will Treasury Share Accounts work?
• Treasury Shares can be certificated or uncertificated. If uncertificated then the company must be a Crest Participant.
• We will sponsor companies as CREST Participants, and organise the necessary CREST Settlement Bank accounts.
• We will ensure that the dividends are not paid and that the Treasury Shares have no voting rights attached to them.
• We will work with companies to ensure that the other legal requirements are complied with.
Why have a Treasury Share Account?
• Dematerialisation - Facilitates a faster settlement service and the ability to have more efficient stock management.
• Stock Management - Reduces complication when dealing with multiple transactions.
• Delegation of Management of Account - We will control and reconcile the Treasury Share Account.